Revenue in the first quarter of 2009 increased 32.1% to $18.5 million from $14.0 million in the first quarter of 2008. The increase in revenue was driven by a 31.9% increase in sales of natural gas to $15.0 million from $11.3 million, and a 54.1% increase in installation and other sales to $2.4 million from $1.5 million. Gasoline revenue was $1.2 million, an increase of 3.9% from $1.1 million in the prior year's period. In the first quarter of 2009, gasoline contributed $1.2 million, or 6.3% of total revenue, compared to $1.1 million, or 8.1% of total revenue, in the prior year's period. As the revenue contribution from gasoline became material, the Company began to break out revenue contribution from the sale of gasoline through its CNG fueling stations in the fourth quarter of 2008.

Gross profit in the first quarter of 2009 increased 58.2% to $9.6 million, from $6.1 million in the first quarter of 2008. Gross margin expanded 859 basis points to 52.0% in the first quarter from 43.4% in the first quarter of 2008. Gross margin performance reflects increased sales of natural gas, which generated gross margin of approximately 54.9%, compared to 45.5% in the prior year's period.

Operating income in the first quarter of 2009 increased 47.8% to $5.6 million from $3.8 million in the prior year's period. Operating margin in the first quarter of 2009 was 30.4%, compared to 27.2% in the prior year's period. Operating expenses in the first quarter of 2009 were $4.0 million, compared to $2.3 million in the prior year's period, reflecting expanded business operations.

Net income in the first quarter of 2009 increased 49.6% to $4.2 million, or $0.29 per diluted share, from $2.8 million, or $0.19 per diluted share, in the first quarter of 2008.

Mr. Qinan Ji, Chairman and CEO of China Natural Gas, commented, "We are pleased with strong financial performance in the first three months of 2009. During this quarter, we signed an agreement with the governments of Yulin city and Shaanxi province that secured our power supply and provided a cost savings of approximately RMB 26 million. We became the exclusive provider of natural gas services to Xi'an Baqiao Science and Technology Industrial Park, a transportation hub to eastern China. We also grew our customer base for CNG to nearly 100,000 accounts. We believe that all of these factors will contribute to our sustained strong performance in the future."

Liquidity and Capital Resources

As of March 31, 2009, the Company increased cash and cash equivalents by $3.2 million to $9.1 million, compared to $5.9 million as of December 31, 2008. Cash flows from operations grew 78.1% YoY to $6.2 million, versus $3.5 million a year ago. The Company invested an additional $2.5 million to construction in progress related to its LNG project. Accounts receivable was a modest $0.9 million, and DSOs remained significantly below 10 days.